SECTORS

Myanmar Power Market

Energy Sector

Myanmar's emergence in the last 24 months as South-East Asia's most exciting business opportunity has rarely been out of the press. It has a large, youthful population, a strategically advantageous geographical location within the ASEAN community and, most importantly following decades of authoritarian rule, a renewed desire to undertake the political and economic reforms necessary to position itself as a key economy in the region.Like any developing economy, one of the most important building blocks for Myanmar's economic development will be access to electricity. Without power, Myanmar's industry will not reach its full potential.

Strong Demand And Potential Growth

Presently, only 30% of Myanmar's population have access to electricity (with that percentage decreasing to around 6% in rural areas) and there were demonstrations last year in Yangon against rolling power cuts. The power sector is therefore a top priority for the government, and the latest announced goal is to increase capacity to 20,000MW by the year 2030 - a monumental plan given the current installed capacity of only 4,000MW.

The government also plans to revise the existing electricity law (dating from 1984, it was enacted during the years of isolation), and is working with the Asian Development Bank to understand the scope of this challenging task. The government is also in the process of drafting a new energy policy, through the National Energy Management Committee.

In terms of fuel sources, gas-fired power projects have seen the most initial activity. The 120MW Ahlone power project, being developed by Toyo Thai, is one of the most progressed power projects involving international sponsors, with 80MW already being dispatched. Other significant projects under development include a 500MW gas-fired power project in Thakayta province, being developed by a South Korean consortium, and three locally developed power projects of 50MW each.

Myanmar also has significant hydropower potential of about 100,000MW, with around 40,000MW of hydropower having so far been identified for possible development. Hydropower projects have their own challenges, however, due to seasonality of power supply and significant resettlement issues. The distance of the hydropower resource from the main demand centre of Yangon is also an issue, with significant upgrading of the transmission network required to avoid substantial transmission losses. As such, there is a recognition by the government that hydropower (which currently accounts for the bulk of the country's base-load) may be better suited to peak load supply, with thermal power capacity being stepped up to provide base-load.

Keen Interest From International Banking Sector

In spite of the challenges, there is relatively strong interest from the international lending community in Myanmar; the challenge is to convert this interest into debt funding for suitable projects. Myanmar presents a new frontier market in the South-East Asia region for the international banks, especially as markets such as Thailand and the Philippines are increasingly dominated by strong local banks. The international banks know that the lender that takes a leading role in the first major power project financing in Myanmar will have a greater profile when the sector expands. Many of the key regional and international project finance banks have established representative offices in Yangon and a number of them now have a clear mandate to lend - provided it is to the right project.

Challenges

While Myanmar has many of the raw ingredients for a burgeoning project finance market to supply it with the power it needs, there remain a number of issues that could act as a significant drag on such investment in the near-term.

Lender Security

The extent of the collateral available to lenders is also a key concern in Myanmar. Although existing law provides that a range of security interests are available, there are limited examples of these being used in practice. Importantly, Myanmar law does not allow foreign lenders to take security over immoveable property, and this is where experienced international and local counsel can combine to advise on a robust security structure to satisfy international lenders.

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